No bank that I talk to these days can find an easy way to make money in their investment portfolio. Low interest rates have cut income on all but the longest Treasury debt, and the low-rate environment is showing no signs of abating anytime soon. The simplest agency debt trades at yields just above the Treasury curve. And the simplest agency mortgage-backed securities have historically modest yields compared to other markets.

But the steps many community banks are taking to increase their investment yields in this environment are giving silent rise to another risk in bank portfolios: illiquidity.